Timeshare company Sunterra and its former auditor, Grant Thornton, are locked in a dispute over when the auditor learned about a whistle-blower’s accusations.
Sunterra, which dismissed Grant Thornton on March 21, disclosed in a Securities and Exchange Commission filing on Monday that on or around December 9, it had received an E-mail from a former employee alleging accounting irregularities related to Sunterra’s European operations.
Within one business day of receiving that E-mail, the company continued, it informed both Grant Thornton and its own audit and compliance committee of the nature of the allegations. Sunterra added that it advised Grant Thornton that it had submitted the allegations to its internal auditors and in-house legal counsel for investigation and follow-up.
On March 29, Sunterra also disclosed, its audit and compliance committee, with the knowledge of Grant Thornton, authorized the engagement of outside legal counsel to look into the allegations. And on April 9, the committee hired an independent legal counsel to investigate, review, and advise it about the allegations and any other matters that may arise.
Grant Thornton, however, has some issues with the timeline.
In a letter to the SEC dated April 10 and contained in the Sunterra filing, the auditor stated that on March 23, it received an E-mail from the former employee, who included a copy of his December 9 E-mail to Sunterra. Grant Thornton maintained that it “had not previously been provided with this E-mail, or the specific allegations being made by the previous employee, during either our audit of Sunterra Corporation’s financial statements for the year ended September 30, 2005 or when we performed interim review procedures on the company’s financial statements for the quarter ended December 31, 2005.”
Grant Thornton informed Sunterra, according to the letter to the SEC, not only that the company should evaluate the possible effect on previously issued financial statements, but also that additional procedures are needed for Grant Thornton to re-assess the fairness or reliability of its previously issued audit and internal-control reports.